Budget storm clouds

While Gov. Dannel P. Malloy was busy taking whacks at Republicans at the Democratic National Convention, and parents were celebrating the return of children to school, some disquieting fiscal news arrived this week from the office of state Comptroller Kevin P. Lembo.

The comptroller reported that his final calculations showed the fiscal year ending June 30 finished with a $143.6 million deficit. While expected, and a small amount relative to a $20.1 billion budget, there are clear indications of things only getting worse unless the governor and legislature can find new savings going forward. In that regard, they've limited their options.

Mr. Lembo notes that the General Assembly and Gov. Malloy budgeted for just 2.6 percent spending growth this fiscal year. Given that spending grew at double that rate - 5.2 percent - last year, that will be some trick. And to avoid more deficit spending, the state needs tax and other revenues to grow. Revenue projections fell $227 million short of expectations in the just completed fiscal year.

The state failed to finish the year in balance despite cutting salary and wage costs by about 8 percent, according to Mr. Lembo. Labor savings resulted from a reduction in the workforce and worker concessions, including a salary freeze. But those savings were more than offset by increases in Medicaid spending, retirement benefits and debt service.

Short of a robust economic recovery that generates a big boost in tax revenue, the state budget outlook will grow more alarming in 2013 and 2014. In return for concessions, state workers received no-layoff assurances and raises of 3 percent annually for three years, starting in July 2013, raises that will amount to 4 percent for many because of step increases. The administration has not made it clear how it intends to meet those obligations. Voters, assured that the record-setting tax hikes the legislature approved in 2011 would address the fiscal crisis, would surely rebel against any more proposed tax increases.

The bottom line is that while the Malloy administration dealt with the fiscal crisis it inherited, the fiscal challenges will continue and, if not adequately addressed, could turn into another crisis to come.